Analyst: Audacy Must Cut Expenses To Bare Bone

In light of another quarter of sagging revenue and tepid ad sales, at least one analyst who tracks Audacy believes the audio content provider might not survive the next year unless it significantly cut costs.

The Philly Business Journal reports Craig Huber of Huber Research Partners made that declaration one day after the Philadelphia-based company reported fourth quarter earnings on Wednesday. Audacy's stock closed down more than 5% at 14 cents per share after the earnings became public, putting the price at about half of the 29 cents per share it was worth when the company reported third quarter earnings in November.

Audacy executives attributed the financial woes to decreased advertising demand and macroeconomic issues created by inflation and Russia’s ongoing conflict with Ukraine.

The nation’s second largest radio station owner has more than $2 billion in debt on its books.

Huber said Audacy has too much debt and is not being aggressive enough with its cost-cutting initiatives. On Wednesday’s call with analysts, Audacy executives predicted 2023 costs would be down slightly from 2022, which Huber called a “disaster.” Given the pressure on revenue from the macroeconomic environment and long-term negative trends with radio advertising, he believes the company must implement deeper expense cuts.

“The stock split doesn't do a darn thing,” Huber told the Business Journal on Thursday. “And this whole refinancing that they're talking about doing, that doesn't matter. What matters is to cut costs in order to prop up a deal as best they can, given the huge debt load that they have in a worsening economic backdrop. And they're talking flat [costs or] going down slightly. They need to be down a good 5% to 10% and they may not get through the next six to 12 months if they're not careful here on the cost side. There's no future if they can't get through this very difficult period here."

David Field

Huber said the company will need to cut "into the bone and muscle," targeting reductions in areas like its real estate footprint, professional fees and salaries, as well as undertaking layoffs. It's not a good time to sell stations due to the macroeconomic environment, and Audacy is committed to maintaining its investments in its burgeoning podcasting, streaming and advertising technology initiatives.

Huber asked Audacy CEO David Field on Wednesday’s earnings call if the company might need to enact more cuts if economic conditions worsened this year.

Field ticked off three components that are hurting the company:

1. Audacy has a number of sports play-by-play agreements that Field described as “margin killers.” For example, he said Audacy elected not to renew the Chicago Bears play-by-play agreement this year, which will save the company between $2 million and $3 million. He expects the company “to be really disciplined going forward on some of those contracts.” In Philadelphia, Audacy's SportsRadio 94 WIP has play-by-play deals with the Eagles and Phillies.
2. Audacy's strategic investments in the digital space is something Field believes will help in the long term, with new technology cutting costs, but in the short term the costs have yet to yield their full potential benefits.
3. Market composition is also a hindrance. Audacy has been focused on expanding in its largest metro markets, which Field said are growing 6% slower than smaller and mid-size markets.